ElectraNet Revenue Proposal Public Forum 23 July 2012 - PowerPoint PPT Presentation

ElectraNet Revenue Proposal Public Forum 23 July 2012 www.electranet.com.au

Overview  ElectraNet recognises the community sensitivity to rising energy costs and has worked hard to deliver a responsible Revenue Proposal with minimal price impact  Forecasts have been developed within a strategic framework supported by a clear Vision and Board-approved strategies  Overall focus on risk-based approach to forecasts and lowest long- run cost solutions  Capital investment program driven by essential high-risk asset replacement and transmission line refurbishment requirements and lower load-driven program (supported by AEMO)  Asset management needs are driving operating expenditure forecasts based on asset condition and risk, and the drive to optimise network capability and prolong asset life ElectraNet Slide 2

Outline  Context  Strategic framework  Historic performance  Expenditure Forecasts  Conclusions ElectraNet Slide 3

Context www.electranet.com.au

Olympic Dam Nth Leigh Ck Coalfield Leigh Ck Olympic Dam Transmission Network South West Woomera Pimba Mt Gunson Neuroodla Davenport Playford Cultana Stony Baroota Pt Whyalla Terminal Wudinna Middleback Bungama Belalie Pt Pirie Hallett PS Canowie Clements Redhill Gap Mt Millar Mokota Brinkworth Yadnarie Clare Snowtown Nth Mintaro Robertstown North West Bend Kadina East Waterloo Waterloo East Hummocks Monash Near Metro and Eastern Hills Enlargement Ardrossan Berri Dorrien West Templers West Roseworthy Pt Lincoln Templers Templers West Sleaford Para Terminal Dorrien Tungkillo Dalrymple Mannum Cherry Happy Valley Roseworthy Wattle Pt Gdns Mobilong Kanmantoo Morphett Vale Back Tailem Bend East Callington Starfish Hill Parafield Para Gdns West Pelican Pt TINS LeFevre Keith TIPS B New Osborne Millbrook TIPS A Angas Creek Man-Adel PS3 Kilburn Northfield Man-Adel PS2 Dry Tungkillo Man-Adel Creek Magill PS1 Mannum East Tce City West Kincraig Happy Valley MB-HahndPS3 Mobilong Mt Barker Penola West Morphett Vale Kanmantoo MB- Mt Barker Sth MB- Cherry Snuggery HahndPS2 East Back Callington HahndPS1 Gdns South East Mayurra Mt Gambier Lake Bonney Blanche Wind Farm Canunda ElectraNet Slide 5

Key challenges  Changing environment - increasing uncertainty given range of political, economic and technological factors  Safety - managing bushfire risk and vegetation clearance requirements  Clean energy - continued intermittent generation development  Mining sector expansion - prospect of significant resource development  Labour costs - increasing competition for skilled resources  Technological changes - smarter technology, energy storage, new consumption patterns ElectraNet Slide 6

Key challenges (cont.)  Scale – relatively small network limits scope for economies of scale  Customer density – lowest energy density in the NEM reflecting small population and large geographic area (i.e. relatively more network required to supply each customer)  Load factor – worst load factor in the NEM given „peaky‟ load profile (i.e. relatively more capacity required to deliver each unit of energy)  Topology – relatively more assets providing transmission services in SA (i.e. relatively larger number of substations and lower voltage assets that would typically be found in distribution systems)  Ageing network – 32% of transformers and 42% of line assets will exceed nominal asset lives by end of next regulatory period (June 2018)  Asset condition – detailed asset inspections are revealing significant challenges ElectraNet Slide 7

Key challenges (cont.) Length of transmission line required to Transmission assets required to transmit supply each MW of peak demand each GWh of electricity Ratio of peak to average demand These challenges mean efficient costs in SA will be relatively higher than elsewhere ElectraNet Slide 8

Strategic Framework www.electranet.com.au

Network 2035 Vision  Key vehicle for engagement with stakeholders  Process commenced in 2010 with focus groups and environmental scan  Draft Vision issued for consultation in 2011  Stakeholder feedback taken into account in finalising the Vision  Final Network 2035 Vision published April 2012  Available at www.electranet.com.au ElectraNet Slide 10

Network 2035 Vision (cont.) Objectives for future development of the electricity transmission network were developed in consultation with stakeholders Key change drivers identified… 1. Government policy response to climate change 2. Mining-related developments creating increased demand 3. New technology changing how electricity is generated, used and stored 4. Ongoing regulatory reform in energy markets ElectraNet Slide 11

Asset management planning framework ElectraNet Slide 12

Historic Performance www.electranet.com.au

Historic performance  Changing network investment priorities managed within capex allowance (forecast to be within 1% of allowance) with variation in expenditure timing due to: – shift in driver date of various projects and approval delays – resourcing, delivery and financing challenges  Opex overall in line with allowance: – cost savings primarily in corporate costs – higher maintenance costs including increased vegetation management requirements have eroded these savings  Performance against service indicators exhibits overall trend of high performance ElectraNet Slide 14

Capital Expenditure Forecast www.electranet.com.au

SA planning arrangements  ElectraNet responsible for transmission investment decision making and service delivery  Reliability standards are set independently by the jurisdictional regulator ESCOSA in Electricity Transmission Code – set economically using probabilistic assessment and expressed deterministically  AEMO provides independent planning oversight via services provided to the SA Government and more generally the NTNDP, joint planning and RIT-T processes  AEMO State-wide demand forecast has been used to plan main grid augmentation (no ex-ante projects in forecast period)  Distribution and customer connection point forecasts drive local augmentation ElectraNet Slide 16

AEMO review  SA Government asked AEMO to assess: – validity of augmentation capex projects – need and triggers for contingent projects – compliance with Electricity Transmission Code  AEMO conclusions: – found for each augmentation that a need exists, the timing is appropriate and option proposed is reasonable – confirmed the consistency of the forecast with the NTNDP – confirmed compliance with the ETC – endorsed contingent project drivers and triggers  Final Report published on AEMO website ElectraNet Slide 17

Forecast capex drivers  Ongoing peak demand growth driving reliability investment requirements (but much lower than in current period)  Growing number of assets nearing end of technical life requiring replacement (based on asset condition and risk)  Additional investment required to refurbish and extend the life of transmission lines based on asset condition and risk mitigation (to minimise long-run costs)  Need for timely land and easement acquisition to meet future investment requirements ElectraNet Slide 18

Capex forecast ElectraNet Slide 19

Capex trends  Shift in investment driver from demand to replacement, based on risk: Historic Forecast Category Explanation of significant variations ($12-13) ($12-13) Augmentation 362 118 Reduction reflects no new large augmentations, uncertainty in major new loads (e.g. mining), and focus on small projects to defer major augmentation Connection 126 133 No significant variation Strategic land/ 30 66 Significant increase driven by projected need for future Easements transmission line projects Replacement 237 398 Increased end of technical life investment in water pumping and other radial substations, telco assets and continuing network projects Refurbishment - 54 Line refit projects driven by asset condition and risk, extending asset life and avoiding full replacement Security/Compliance 63 57 No significant variation Inventory/Spares 16 18 No significant variation Business IT 42 44 No significant variation Buildings/Facilities 8 6 No significant variation Total 883 894 ElectraNet Slide 20

Asset replacement priorities A number of factors are driving a significant increase in replacement requirements in the forecast period:  Substations serving high risk water pumping station loads and small radial substation sites  Other high priority substation component replacement works, including individual primary plant components and metering asset replacements  Continuation of substation and secondary system replacements from current period  Increase in telecommunication replacement projects driven by asset end of life criteria and service level requirements Replacements are being driven by asset condition and assessed risk, not by age or value ElectraNet Slide 21